Author Topic: Recently turned 18  (Read 3562 times)

RingofFire

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Recently turned 18
« on: March 24, 2016, 10:02:57 AM »
I have recently turned the age of 18 and will attend university starting this Fall. I currently do not have an income nor enough cash in my bank account to meet the minimum fund requirement for Vanguard. My only source of income will be from my parents to pay for tuition and living expenses as well as any possible paid internship positions for an economics major. I feel nearly physically ill on the potential loss of exponential gains for postponing any sort of serious contributions toward my retirement until I get a job after graduation. Fortunately, my parent's good financial situation mean I will not acquire debt for the next 4 years of my life.

Assuming an average annual real (assuming 2% inflation and 10% average nominal equity growth) rate of return of 8% and graduation from grad school at age 28 ( meant about 26) with a target retirement age of 40, in order to end with $2,000,000 I would have to contribute approximately $100,000 a year which would be doable however, that assumes I would earn at least approximately $120,000 after taxes. If I started earlier at age 24(EDIT: I meant 22, calculation is incorrect actually), I would only have to contribute approximately $60,000 a year which is well within the range of 2014 median pay for an economist of $96,000 according to the Bureau of Labor.

Should I be worried about contributing now or later after graduation? Would I regret not contributing now? I'm just worried about my plans to attend grad school thereby delaying earning an income.
« Last Edit: March 24, 2016, 11:08:31 AM by Drakenish »

CmFtns

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Re: Recently turned 18
« Reply #1 on: March 24, 2016, 10:17:56 AM »
I think you should first of all relax... go to college, work hard, make friends have a good time, get internships in summers and maybe work part time during the year and invest 100% of that extra money throughout your next few years. You are in a fortunate position to have your college paid for and you will be leagues ahead of your peers when you graduate even if your net worth is ZERO.

On the other hand if you have a job lined up or can find one in the next year or two making $96,000 then you have an argument not to go to college and have a tough decision to make but that's only if you can find a good job without a degree. Maybe you should consider doing an only 4 year degree then you can get started at 22-23 years old. My GF decided to forgo extra schooling in nursing after her undergraduate because the cost of schooling and lost wages for 3 years did not make sense for a low budget early retirement strategy so just do the math and figure out what's best for you.

Also, you basically said you would live off ~$20-25k/yr which is sustainable with around ~$600k so why do you need 2 million
« Last Edit: March 24, 2016, 10:45:53 AM by comfyfutons »

asiljoy

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Re: Recently turned 18
« Reply #2 on: March 24, 2016, 10:18:37 AM »
Slow your roll. The future is scary, but it can be less daunting if you view things in terms of small steps. My general advice would be:

  • Yay school. Focus and make sure you pass your classes. Nothing burns money quite like paying for the same credit twice.
  • Take as many internships as you can without burning yourself out. This will give you an idea what job you'd actually want to do in the real world, and as a bonus it builds your resume making job hunting easier post graduation.
  • Throw a couple bucks into a Sharebuilder account/some other cheap roth option weekly. Even if ends up being only a couple hundred dollars at the end of the year, that's better than zero soldiers working for you. You can always roll that over later.
  • Apply for financial aid anyways to see if you can get a student job. These are usually 10-15 hour a week gigs that are pretty low stress. The caveat is that usually they're only open to people with certain aid packages.

Good luck!

Midwest

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Re: Recently turned 18
« Reply #3 on: March 24, 2016, 10:19:03 AM »
If looking to retire early, I would reconsider the 10 years of additional schooling.  What field are you looking at?

Also, your rate of return is probably unrealistically high.  10% may or may not happen for you, especially with a short time horizon (12 years).

boarder42

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Re: Recently turned 18
« Reply #4 on: March 24, 2016, 10:23:49 AM »
i would be evaluating your major and make sure you can come out of school with a solid job makin close to six figures in 4 years.  thats how you maximize this.  Your school is already free.

Le Dérisoire

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Re: Recently turned 18
« Reply #5 on: March 24, 2016, 11:25:58 AM »
If I started earlier at age 24, I would only have to contribute approximately $60,000 a year which is well within the range of 2014 median pay for an economist of $96,000 according to the Bureau of Labor.

It's unlikely that you will be making the median salary when you get out of the university. For most professions, salary start low compared to the median and take years to grow above it, unless you work in a big firm in a very big city and work an extraordinarily large amount of hours. Since you imply that you will be living on 20K$ a year, I assume that you will not be working in a very big city, otherwise your living expenses would be much higher.

And if you can live with 20K a year, as you are implying, why do you need 2M$ (in real terms) to retire?

I think that if you want to maximize your chances to FIRE, you should focus on studying in a field that you will enjoy (this is extremely important for long term success) and that quickly yields good employment opportunities. I don’t know where you live, but where I live there is not a lot of opportunities for pure economists. Most of the time economists also have other qualifications such as the CFA designation, a MBA or some form of accounting training.

Finally, I suggest that you do not follow a rigid plan, but rather a set of principles. You can be sure that whatever your long term plans are, they will not happen as you planned them. Success happens to people who are flexible, open-minded and that adapt quickly to opportunities.

I’m not writing you this to discourage you of reaching FI. I have no doubt that you can do it. However, having more realistic expectations will likely yield better long term results.

RingofFire

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Re: Recently turned 18
« Reply #6 on: March 24, 2016, 11:53:45 AM »
If looking to retire early, I would reconsider the 10 years of additional schooling.  What field are you looking at?

Also, your rate of return is probably unrealistically high.  10% may or may not happen for you, especially with a short time horizon (12 years).

I attended a university class over economics and my professor said that 10% nominal was a conservative estimate for equities.



I think you should first of all relax... go to college, work hard, make friends have a good time, get internships in summers and maybe work part time during the year and invest 100% of that extra money throughout your next few years. You are in a fortunate position to have your college paid for and you will be leagues ahead of your peers when you graduate even if your net worth is ZERO.

On the other hand if you have a job lined up or can find one in the next year or two making $96,000 then you have an argument not to go to college and have a tough decision to make but that's only if you can find a good job without a degree. Maybe you should consider doing an only 4 year degree then you can get started at 22-23 years old. My GF decided to forgo extra schooling in nursing after her undergraduate because the cost of schooling and lost wages for 3 years did not make sense for a low budget early retirement strategy so just do the math and figure out what's best for you.

Also, you basically said you would live off ~$20-25k/yr which is sustainable with around ~$600k so why do you need 2 million

I intend to pass on my assets to my future children furthermore, I don't need much to live and enjoy life.

If I started earlier at age 24, I would only have to contribute approximately $60,000 a year which is well
I think that if you want to maximize your chances to FIRE, you should focus on studying in a field that you will enjoy
I can assure you that I am pursuing economics for entirely intellectual, not monetary, reasons.
« Last Edit: March 24, 2016, 11:58:26 AM by Drakenish »

Midwest

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Re: Recently turned 18
« Reply #7 on: March 24, 2016, 12:14:21 PM »
If looking to retire early, I would reconsider the 10 years of additional schooling.  What field are you looking at?

Also, your rate of return is probably unrealistically high.  10% may or may not happen for you, especially with a short time horizon (12 years).

I attended a university class over economics and my professor said that 10% nominal was a conservative estimate for equities.

Over a long enough period 10% is pretty accurate.  Over a shorter period, maybe, maybe not. 

http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html


Tetsuya Hondo

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Re: Recently turned 18
« Reply #8 on: March 24, 2016, 12:17:04 PM »
The only thing you need to invest in over the next four years is yourself. Focus on acquiring valuable skills. That will have a much bigger impact on your ability to be FI than anything else you will do.

ooeei

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Re: Recently turned 18
« Reply #9 on: March 24, 2016, 02:07:23 PM »

I intend to pass on my assets to my future children furthermore, I don't need much to live and enjoy life.

While an admirable sentiment, as you get older you'll find that the kids who got that treatment generally don't do as well as the ones who have to make their own way. Your kids aren't going to need >$1,000,000 supplied from their parents, if their parents do a good job raising them. 

When I first learned about compound interest and saving I had this great plan that was going to make all of my heirs filthy rich by investing early for them (60-80 years early!).  In reality, all it takes is one generation with a different idea to ruin that plan.  Not to mention unless everyone works hard and makes their own money (in which case, why do they need mine?), my investments will eventually be diluted by the branching nature of families.  I have two kids, who each have two kids, who each have three kids.  By the time you get a few generations down your money is split between dozens of people (assuming it lasts that long and isn't squandered by some kid who is entitled because he knew his great grandfather's money was going to pay his way).

Gone Fishing

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Re: Recently turned 18
« Reply #10 on: March 24, 2016, 02:28:03 PM »
+1 on trying to find a little paid work to fund a ROTH every year while you are in college.  Great time to sock away a little cash while you are paying little or no tax.  Working 10-15 hours a week added a lot of balance to my college experience.   Avoid it if you can, unless it REALLY makes sense, but you can always withdraw your contributions without penalties and, after having your ROTH open for 5 years, you can withdraw up to $10,000 in earnings, penalty free, to buy your first home.
« Last Edit: March 24, 2016, 02:57:36 PM by So Close »

DebtFreeBy25

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Re: Recently turned 18
« Reply #11 on: March 24, 2016, 02:49:19 PM »
Slow your roll. The future is scary, but it can be less daunting if you view things in terms of small steps. My general advice would be:

  • Yay school. Focus and make sure you pass your classes. Nothing burns money quite like paying for the same credit twice.
  • Take as many internships as you can without burning yourself out. This will give you an idea what job you'd actually want to do in the real world, and as a bonus it builds your resume making job hunting easier post graduation.
  • Throw a couple bucks into a Sharebuilder account/some other cheap roth option weekly. Even if ends up being only a couple hundred dollars at the end of the year, that's better than zero soldiers working for you. You can always roll that over later.
  • Apply for financial aid anyways to see if you can get a student job. These are usually 10-15 hour a week gigs that are pretty low stress. The caveat is that usually they're only open to people with certain aid packages.

Good luck!

This is excellent advice. I'd emphasize that you should definitely work during undergrad. Even if you don't financially need the income, many employers look down on applicants with a degree but no experience. Work experience always looks good on a resume even if it isn't directly applicable to a particular position. Work study jobs are flexible and low stress, but you have to be income eligible for those positions. Considering your parents are able to pay your college expenses out of pocket, I'm going to take a wild guess and say you're likely not eligible. There will be some other non-work study jobs on campus, too. I'd suggest checking those out in addition to internships.

As for everything else, worry about those challenges when they get a little closer. Your current challenge is have the most beneficial and rewarding undergraduate experience possible. Focus on launching your career and sort out your retirement strategy once your path is a little more defined. Just by acknowledging the need for savings and a investment plan, you're already way ahead of the pack financially speaking. Good luck!

RingofFire

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Re: Recently turned 18
« Reply #12 on: March 30, 2016, 10:01:51 AM »
Thanks Everyone!

I will look into employment opportunities after my first semester to get a feel for the workload but, in reality, I am already investing in myself through education as pointed out in a previous post so it isn't too bad not to invest much of anything during my studies. The intangible investment will show itself in my earning potential hopefully. Again, thank you all for sharing a new perspective in this 'dilemma'.